Scalable fraud prevention and detection processes

Designing a system to catch fraud that grows as you do

Identifying Risk Areas is a big part of ensuring fraud is caught. Make sure that you look at:

Management segregation of duties and board review

Board access to reserve funds, management should never sign on the reserve fund

Who has check signing authority, is it only current board members and a trusted member of management

What happens when spending goes over budget, do you continue doing the same thing or do you have a talk with the board

Who approves vendors, make sure that contractors have appropriate licenses and are bonded and insured and are not in business with board or management members

Who reviews contractor work, was the work actually done and done properly

Board oversight documentation, how can you show that the board approved transactions prior to their being paid for

Minutes to board meetings, should document decisions but need to document all financial decisions

There is always a risk that something is happening that shouldn't be so make sure you take steps to reduce the risk of fraud. If it is only you in your management company:

Have the board authorize any major expenses in advance of the work being done

Request that a board member assist in reviewing maintenance and landscaping projects

Have the treasurer prepare the bank reconciliation

Make sure the secretary documents the board's approval of all contracts, including the name of the contractor and the amount authorized

Ask the board to hire an independent accounting firm to keep the accounting records, reduce your fee accordingly and focus on non-accounting issues

Use work/service orders to control work requested by the board

Use an e-signature system to help document authorizations

As you expand your practice, you can take the above steps and start sharing the responsibility internally

Segregate duties so that those recording transactions are not involved in the actual finance activity

Segregate duties between employees authorized to engage contractors and employees who review and approve the work

Require the finance team to refuse payment on any vendor invoice which is not pre-authorized in the minutes and supported by approved work orders and invoices

Reassign employees every few years so that a fresh set of eyes is evaluating the processes and systems involved with association clients

The single greatest opportunity to reduce the risk of fraud is to make sure that no one employee has excessive rights over your association clients. You need to be able to prove that work done by one employee is overseen by another. Limiting access within your software is an absolute must and documenting your users rights and responsibilities can go a long way to prove to your clients that you are taking all appropriate steps to reduce the risk of fraud and the loss of their money. Your accounting team is an integral part of the fraud prevention and detection system as all transactions ultimately go through the accounting system and end up in the financial statements. Take the time to document your processes or consider engaging another firm like C.O.R.E. to manage and document how transactions are processed to reduce the risk of fraud.

C.O.R.E. Services can help you grow your management practice

CORE can help you grow by providing full accounting and financial management to support you and your association clients. We provide the vital check and balance to ensure that association financial information is always accurate and that vital systems are in place to detect and prevent fraud. Let us help you and your clients safeguard assets by becoming a part of your strategic team today. Contact us today to learn more!

Downloads

We have provided some files which you can use or share to help your associations with their audits and accounting. We have also included some example BPMN files for you to use in documenting your various approval processes.